Case Summary (G.R. No. 129899)
Key Dates and Procedural Posture
Important events: FSVCI incorporated June 8, 1987; deaths of Simona and Francisco (1998 and 1999) led to their daughter Angela acquiring majority shares (70.82%); Angela died September 20, 2009; Madrid executed Affidavit of Self‑Adjudication October 8, 2009; Madrid called a Special Stockholders’ and Re‑Organizational Meeting for November 18, 2009 and executed deeds of assignment on November 10, 2009; a separate Emergency Meeting was held November 6, 2009 by the Saturnino group. Litigation: petition filed in RTC (Legazpi), RTC declared both meetings void (March 3, 2010), Court of Appeals modified to validate November 18, 2009 meeting and ordered a management committee (March 1, 2013), CA denial of reconsideration (August 7, 2013), and the case proceeded to the Supreme Court.
Factual Background — Shareholdings and Competing Meetings
As of May 11, 2009, FSVCI had 24,000 shares: Angela 16,998 (70.82%), Madrid 1,000 (4.16%), Scribner 6,000 (25%), Seva and Sunico one share each. After Angela’s death while serving as Board Chairman, Madrid executed an affidavit of self‑adjudication asserting ownership of Angela’s shares and later sought to effect transfers and call a reorganization meeting (November 18, 2009). Prior to that, Seva (corporate secretary) convened an emergency meeting on November 6, 2009 attended by Saturnino, Seva, and Sunico, which recognized Saturnino as a director and elected Saturnino President and Scribner Vice‑President. Both groups held competing actions to assert control.
RTC Ruling and Grounds
The Regional Trial Court (Special Commercial Court) voided both the November 6 and November 18, 2009 meetings. The November 6 meeting was invalidated for lack of quorum (only two directors physically present) and because Scribner could not attend by proxy, plus recognizing Saturnino without formally filling Angela’s vacant directorship would have increased the board beyond the number fixed in the Articles of Incorporation. The November 18 meeting was invalidated because the RTC viewed Madrid’s interest in Angela’s shares as merely equitable until a probate or administration proceeding conclusively transferred title; thus Madrid could not exercise majority rights at that time.
CA Ruling and Grounds for Modification
The Court of Appeals overturned the RTC as to the November 18 meeting, holding that Madrid’s affidavit of self‑adjudication effected ownership of Angela’s shares and that he had complied with registration through the November 18, 2009 General Information Sheet (GIS) filed with the SEC. The CA therefore deemed Madrid the controlling stockholder and validated the reorganization and elections from the November 18 meeting. The CA also ordered the appointment of a management committee due to persistent intra‑corporate conflict, allegations of embezzlement, leadership uncertainty, and alleged imminent danger of dissipation and paralysis of corporate operations.
Supreme Court — Ownership, Registration, and Legal Principle
The Supreme Court emphasized the legal distinction between acquiring ownership inter se and effecting a transfer binding on the corporation. It reiterated that under Section 63 of the Corporation Code, transfers of shares are not effective against the corporation until recorded in the corporate books (the Stock and Transfer Book), and Section 74 requires maintenance of that book as the controlling record of stock ownership. The Court relied on controlling jurisprudence (e.g., Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga and Lao v. Lao) to conclude that inclusion in a General Information Sheet submitted to the SEC is not equivalent to registration in the corporate Stock and Transfer Book and does not by itself confer transferee rights vis‑à‑vis the corporation.
Supreme Court — Application to this Case (Validity of November 18 Meeting)
Although subsequent proceedings in the probate/administration docket (RTC‑Makati and appeals) recognized Madrid as Angela’s sole heir and appointed him special administrator, the Supreme Court found that at the time Madrid called and conducted the November 18, 2009 meeting there was no showing that Angela’s shares had been registered in FSVCI’s Stock and Transfer Book in Madrid’s name. The CA therefore erred in relying on the GIS as proof of registration. Because Madrid’s transfer was not recorded in the corporate books at the time of the meeting, he lacked the registered shareholder standing to call the meeting or to vote sufficient shares to effect the corporate reorganization; consequently the November 18, 2009 meeting and the acts taken therein were null and void.
Board Composition and Remedial Order Regarding Directors
Given the nullity of both the November 6 and November 18, 2009 meetings (the RTC’s voiding of the November 6 meeting having attained finality), the Supreme Court ordered reconstitution of the Board of Directors as it stood immediately prior to Angela’s death. The remaining directors (Madrid, Seva, Scribner, and Sunico) were to resume their corporate positions and to fill the vacancy caused by Angela’s death in accordance with Section 29 of the Corporation Code. The reconstituted board would s
...continue readingCase Syllabus (G.R. No. 129899)
Nature and Posture of the Case
- Petition for review on certiorari assailing the Court of Appeals Decision dated March 1, 2013 and Resolution dated August 7, 2013 in CA-G.R. SP No. 113279.
- The CA decision modified the RTC decision dated March 3, 2010 in SR-09-007 by (a) declaring the Special Stockholders' and Re-Organizational Meeting of petitioner F & S Velasco Company, Inc. (FSVCI) held on November 18, 2009 legal and valid; and (b) remanding the case to the RTC and directing the appointment/constitution of a Management Committee to take over FSVCI's corporate and business affairs.
- The petitioners sought reversal of the CA's modification and relief from the consequences of the November 18, 2009 meeting and the creation of a Management Committee.
Parties and Corporate Background
- Petitioner corporation: F & S Velasco Company, Inc. (FSVCI), organized and registered on June 8, 1987.
- Original incorporators included Francisco O. Velasco (Francisco), Simona J. Velasco (Simona), Angela V. Madrid (Angela), respondent Dr. Rommel L. Madrid (Madrid), and petitioner Saturnino O. Velasco (Saturnino).
- At relevant times, the FSVCI Board of Directors consisted of Angela (Chairman), Madrid, Scribner (Rosina B. Velasco-Scribner), Seva (Irwin J. Seva), and Sunico (Mercedez Sunico).
Key Facts
- Upon the deaths of Simona (June 12, 1998) and Francisco (June 22, 1999), Angela inherited their shares, resulting in her control of 70.82% of FSVCI's 24,000 total shares as of May 11, 2009.
- Share distribution as of May 11, 2009: Angela 16,998 shares (70.82%); Madrid 1,000 shares (4.16%); Scribner 6,000 shares (25%); Seva and Sunico one (1) share each.
- Angela died intestate and without issue on September 20, 2009 while serving as Chairman of the Board.
- On October 8, 2009, Madrid, as Angela’s spouse, executed an Affidavit of Self-Adjudication covering Angela’s estate, including her 70.82% FSVCI shares.
- Madrid called a Special Stockholders’ and Re-Organizational Meeting for November 18, 2009 and, on November 10, 2009, executed separate deeds of assignment transferring one share each to Vitaliano B. Ricafort and to respondents Danao, Labalan, and Arimado (collectively the Madrid Group).
- On November 6, 2009, Seva (then corporate secretary) sent Notice of an Emergency Meeting; the meeting was held and attended by Saturnino, Seva, and Sunico (the Saturnino Group). At that meeting Saturnino was recognized as a Board member and thereafter as FSVCI President; Scribner was elected Vice-President.
- Despite the November 6 meeting, the Madrid Group held the November 18, 2009 meeting, ousted the existing Board (save for Madrid), and elected Madrid President, Danao Vice-President, Arimado Corporate Secretary, and Labalan Treasurer.
- The Saturnino Group filed a petition for Declaration of Nullity of Corporate Election with preliminary injunction and TRO against the Madrid Group before the RTC acting as a Special Commercial Court.
- The RTC denied the TRO. The Madrid Group filed an Answer with compulsory counterclaims, including prayer to declare the November 6, 2009 meeting null and for appointment of a Management Committee; the RTC denied the application for a Management Committee by Order dated January 12, 2010.
Issues Presented to the Supreme Court
- Whether the CA correctly ruled that:
- (a) The November 18, 2009 Special Stockholders’ and Re-Organizational Meeting called by Madrid is legal and valid; and
- (b) A Management Committee should be appointed or constituted to take over FSVCI’s corporate and business affairs.
RTC Decision (March 3, 2010) — Findings and Rationale
- The RTC declared both the November 6 and November 18, 2009 meetings null and void.
- On November 6, 2009 meeting:
- Invalid for lack of quorum: only two Board members (Seva and Sunico) attended.
- Scribner could not attend by proxy because the Corporation Code prohibits proxy attendance in Board meetings.
- Recognition of Saturnino as an additional Board member (without formal election to fill Angela’s vacancy) effectively increased the number of Directors to six, exceeding the number specified in FSVCI’s Articles of Incorporation.
- On November 18, 2009 meeting:
- Madrid’s affidavit of self-adjudication gave him only an equitable right over Angela’s shares until probate proceedings determined the rightful owner of Angela’s properties.
- Because Madrid’s rights were equitable only and until probate resolution, he could not exercise the rights of ownership (e.g., call a meeting); therefore his call and the conduct of the November 18 meeting were invalid.
- RTC denied the Madrid Group’s application for the appointment of a Management Committee.
Court of Appeals Decision (March 1, 2013) — Findings and Rationale
- The CA modified the RTC decision by:
- Declaring the November 18, 2009 meeting valid; and
- Remanding to the RTC with a directive to appoint/constitute a Management Committee to take over FSVCI’s corporate and business affairs.
- The CA concluded Madrid’s Affidavit of Self-Adjudication conferred ownership of Angela’s 70.82% shares to him, giving him a total of 74.98% ownership (including his original 4.16%).
- The CA found Madrid complied with registration requirements through FSVCI’s General Information Sheet (GIS) dated November 18, 2009 filed with the Securities and Exchange Commission (SEC), thereby validating his call for and actions at the November 18 meeting and making the results binding on the corporation.
- The CA deemed the appointment of a Management Committee appropriate given: persisting conflict between the Saturnino and Madrid Groups, allegations of embezzlement of corporate funds, uncertainty in leadership and direction, imminent danger of dissipation, loss and wastage of FSVCI assets and paralyzation of business operations prejudicial to minority stockholders, parties-litigants, or the general public.
- The Saturnino Group’s motion for reconsideration before the CA was denied in a Resolution dated August 7, 2013.
Supreme Court’s Examination of Probate and Finality of Madrid’s Inheritance
- After the Affidavit of Self-Adjudication, Madrid filed a petition for letters of administration on Angela’s estate in S.P. No. M-7025 before RTC-Makati Branch 59 (later re-raffled to Branch 142 for pending incidents).
- Orders dated December 29, 2010 and March 29, 2011 of RTC-Makati recognized Madrid as Angela’s sole heir to the exclusion of others (notably Lourdita J. Estevez) and appointed him Special Administrator of Angela’s estate.
- Estevez filed a belated challenge via petition for annulment of judgment before the CA (CA-G.R. SP No. 128979), dismissed via Resolutions dated April 3, 2013 and November 4, 2013.
- Estevez’s further appeal to the Supreme Court was denied in Minute Resolutions dated February 26, 2014 and June 16, 2014. An Entry of Judgment dated June 16, 2014 evidenced finality.
- In view of the foregoing finality, the Supreme Court was constrained to view Madrid as Angela’